ECO-Int-0002-Stock

Historically, Southern Italy has been excluded from national long-term development plans that would allow it to transition to a genuine market economy. For this reason, our hope is that during 2010 it will be possible to engage in concrete discussions about development in the South of Italy. However, this discussion and resulting action could only occur with significant civic investment, cultural reform that makes development more viable and finally, a "good" finance.

The recent financial crisis has redefined the stability of countries and further served to reposition economies according to a more realistic comparative value. In this light, Italy is able to consider her commitment to the South no longer in welfare terms, but as a viable economic opportunity through the development of an area with very high economical potential, such as the Mediterranean. In other words, it is necessary to rethink the issue of development for this area also in light of the experience of "bad" finance and in terms of "development as a vocation" proposed by Benedict XVI in his Caritas in Veritate.

The commitment made by the Italian Government, and in particular by Ministers Giulio Tremonti and Maurizio Sacconi, towards the creation of a "Bank of the South", might represent an interesting step towards recognizing the economic potential of the South. We think that if adequately supported, it may bare significant fruits. Specifically, the Bank of the South should be able to manage subsidized funds directed to the region and stimulate the financial market of the south making it more dynamic. It is designed to be a private bank, a financial institution of second level. A network of banks, entrepreneurs, associations of entrepreneurs and financial subjects, in which the State should have a "subsidiary" role; a role of thinning and collection of private enterprise.

However, we should be aware-in order to avoid making the same mistakes of the past-that the bank and its stakeholders are held to the strictest principles of responsibility: policies and institutions are effective, but they can not and they must not do everything. As Benedict XVI reminds us in Caritas in Veritate, development "is primarily a vocation, and therefore it involves a free assumption of responsibility in solidarity on the part of everyone". It is of fundamental importance to recognize that the economic development of Southern Italy is dependent on the engagement of civil society itself.

Capital and work are not exclusively responsible for generating economic value. A wide range of economists support the belief that the most important determinant of wealth is human capital, because it is the precursor to social capital. In 1861, the Italian social scientist Carlo Cattaneo wrote that in order to create wealth, one first needs intelligent human work because: "Once the circle of ideas is closed so does the circle of wealth remain closed", and again: "there is no work, no capital, that does not begin with an act of intelligence".

Human capital is the prerequisite for development, without which any policy for the South will have no sustainability or longevity. However, the dynamic and intelligent work must be accompanied and supported by institutions capable of harnessing this human capital to obtain desired economic outcomes. Policies have to be able to support the proper functioning of free market economies and place investment in human capital a top priority in development models.

In order to achieve the development of a territory it requires access to stable and substantial financial resources; the primary objective must be the good of the people; and it must be set up to operate in an economically sustainable manner. In this system, truth and transparency is an essential ingredient for the functioning of the market. The creation of the Bank of the South represents a practical instrument for evaluating this development model.

The risk that the Bank of the South will become a new political bandwagon, or worse, an instrument of ill repute or a new financial bubble is certainly high (consider the Luigi Sturzo's "three bad beasts": "statism", "partitocracy", "squandering of public money"), but it is not an inevitable outcome. To avert such a result, the Bank of the South should take lesson from Luigi Sturzo and Wilhelm Röpke's theory: "liberalism of the rules" (Ordoliberalism). They suggest that the principle of competition will strongly guide the social market economy. The Bank of the South must work strategically to identify and support business initiatives capable of generating wealth and employment within the region (not outside or against the market) and to allow businesses that rely on the market to consolidate and develop.

In order to be the motor of development for the South, the Bank will have to show it complies with the logic of the market, to promote leadership roles of the key stakeholders, and be capable of triggering economic processes from the bottom up through the subsidiary method. Ultimately, the Bank of the South should be a bank for relationship-building and connection-capable to raise human capital in the region and transform it into social capital. The prerequisite for application of a successful economic enterprise model is innovative ideas.

Flavio Felice is an adjunct fellow at AEI and the president of the Acton-Tocqueville Studies Centre. Fabio G. Angelini is the managing director of the Acton-Tocqueville Studies Centre.

Photo Credit: iStockphoto/Alex Culla i Vinals